A collection of often sceptical, always candid observations and insights on the US economy and large-cap equity markets. Readers have observed my style and perspective to be that "the emperor has no clothes," and that is reasonably accurate.
Postings reflect my philosophies and perspectives on economics, business and politics.

Friday, November 04, 2005

Much Ado About Nothing

I manage a large-cap equity portfolio strategy with a selection emphasis on consistently superior growth and performance. The past 8 weeks have been anything but calm. Let’s just say I wasn’t used to seeing so many days on which my portfolio rose or fell by more than 1%.

What is comforting to me, however, is that by persevering with my positions throughout the post-hurricane rise and fall of the market, my return for the year is almost back to its peak at the end of September. At that time, its gross return was roughly 12.5%, while the S&P500 Index was at roughly 1.2%. At the trough during October, my portfolio had lost about 10%. It subsequently recovered to only a –5.4% return for the month. At yesterday’s market close, my portfolio had a year-to-date return of 11%, versus roughly .5% for the index. So sticking with my positions throughout the October sell-off was handsomely rewarded.

It would seem that, since the hurricanes hit the US Gulf Coast, economic growth was not that badly damaged, and energy prices and availability are not going to cripple demand after all. Listening to a wide variety of pundits and analysts, I was struck by how many sell-side analysts overlooked the macroeconomic forces at work to drive demand for energy. Thus, as energy companies began to be valued as if they were simply oil tank farms or natural gas tanks, rather than producing enterprises, I felt they had become undervalued and would recover. I did not sell my positions. They now have recovered.

Last week’s third-quarter GDP number, combined with this week’s retail sales results, indicate that all the hand-wringing over an economic slowdown was simply wrong. Oh, well. At least the brokerages made money by facilitating investors’ moves out of, then back into, the retail and energy sectors.

It brings to mind a favorite quote I read a few weeks ago by John Bogle, erstwhile head of the Vanguard Group. In an interview in the Philadelphia Inquirer, he opined that in most situations, an investor’s best guide in the face of volatility and uncertainty is, “don’t do something, just sit there!” I have, and it’s worked. Again.

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About Me

A well-educated veteran of US corporate strategy positions & hedge fund management, as well as research, product development and project work in consulting, strategy and equity management. Academic background in marketing, strategy, statistics and economics.
Currently own Performance Research Associates, LLC, through which I am involved in proprietary equity and equity options investment management.